Consistent bad results can only be explained by consistent bad policies and not by some mysterious run of bad luck.
The classical liberal evokes references to 19th century theories of market liberalization, which were intended to reduce the dead hand of government over the operation of the economy.
Modern progressive recalls the progressive movement of the first third of the 20th century, which championed the rise of the large administrative state to overcome the perceived weaknesses of the classical liberal synthesis.
Governments are to supply public goods and maintain social stability, leaving innovation to the private sector.
Key components of the classical liberal theories:
(1) The call for limited government funded by tax revenues preferably generated under a flat tax. It is proper to use borrowed funds to create long-term capital improvement but not to fund short-term government activities.
The purpose of taxation is to fund the creation of (nonexcludable) public goods that could not be created or maintained without some system of coerced public support.
(2) Traditional libertarian theory insofar as it relies on a system of strong property rights that allow individuals choice on how to use and dispose of their property so long as they do not encroach on the land of their neighbor or create nuisance to their neighbors.
Differentiate between technological and pecuniary externalities. Classical liberalism steers between the risks of anarchy and authoritarianism.
The theory is that the rules that preserve the like liberties of property owners should maximize their joint welfare by imposing parallel limitation against disrupting the quiet enjoyment that neighbors have of their own property.
(3) a strong commitment to the principle of freedom of contract
The progressive agenda shrinks the size of the stock of financial wealth by a sustained program of ill-advised regulation of primary conduct. It imposes extensive and counterproductive programs of redistribution that cannot be supported by a stagnant economy and a shrinking productive wealth base.
Lump sum tax limits the political competition for favorable tax rates.
The restriction of the use of taxation (only to public goods) reduces the likelihood that a skewed set of government payments will undermine the strict parity on the taxation side.
The reason why the gulf between public revenues and public expenditures has risen to 10 percent of GDP, or 40 percent of the federal budget, which now can only be made up by deficit financing:
(1) decrease in tax revenue
(2) increase in government expenditure
(3) increase in regulatory burden
what triggered the downturn in income tax revenue is the radical decrease in the income of upper-income individuals, not any favorable rate break.
5/14/2012
5/12/2012
National income accounting
For economists, all new output that are not consumed are capitals
GDP is monetary measure. To avoid multiple counting, GDP includes only the market value of final goods and ignores intermediate goods altogether. The reason is that the value of final goods already includes the value of all the intermediate goods that were used in producing them.
Nonproduction transactions are excluded from the calculation of GDP.
Two types of nonproduction transactions:
(1) financial transactions that produce final output but if the transactions consist of service fee, that part will be included.
(2) second-hand sales: selling a second-hand commodity to your friend does not generate any current production.
Two ways to look at GDP.
(1) View GDP as the sum of all the money spent in buying it: output/expenditure approach
(2) view GDP in terms of the income derived or created from producing it: income approach
Expenditure approach = personal consumption expenditure (C) + gross private domestic investment (Ig)
GDP is monetary measure. To avoid multiple counting, GDP includes only the market value of final goods and ignores intermediate goods altogether. The reason is that the value of final goods already includes the value of all the intermediate goods that were used in producing them.
Nonproduction transactions are excluded from the calculation of GDP.
Two types of nonproduction transactions:
(1) financial transactions that produce final output but if the transactions consist of service fee, that part will be included.
(2) second-hand sales: selling a second-hand commodity to your friend does not generate any current production.
Two ways to look at GDP.
(1) View GDP as the sum of all the money spent in buying it: output/expenditure approach
(2) view GDP in terms of the income derived or created from producing it: income approach
Expenditure approach = personal consumption expenditure (C) + gross private domestic investment (Ig)
Macroeconomics
Self-interested behavior is simply behavior designed to increase personal satisfaction, however it may be derived.
An aggregate is a collection of specific economics units treated as if they were one unit. In macro, no or very little attention is given to specific units making up the various aggregates.
Macro primarily concerns two things: long run economic growth and short run fluctuations in output and employment that are often referred to as the business cycle.
Some important data in macro:
(1) GDP
real GDP (gross domestic product): a measurement of the value of final goods and services produced within the borders of a given country during a given period of time, typically a year.
nominal GDP: totals the dollar value of all goods and services produced within the borders of a given country using their current prices during the year that they were produced.
Real GDP corrects for price changes.
(2) Unemployment
a state a person is in if he cannot get a job despite being willing to work and actively seeking work.
(3) Inflation
an increase in the overall level of prices
In order to raise living standards over time, an economy must devote at least some fraction of its current output to increasing future output.
Financial investment: the purchase of assets like stocks, bonds, and real estate in the hope of reaping a financial gain.---This is merely the transfer of the ownership
Economic investment: it only includes money spent purchasing newly created capital goods such as machinery, tools, factories and warehouses.
Firms are often forced to cope with shocks--situations where they were expecting one thing to happen but then something else happened. Demand shocks are unexpected changes in the demand for goods and services. Supply shocks are unexpected changes in the supply of goods and services.But shocks don't necessarily mean good things or bad things happen.
Business cycle fluctuations typically arise because the actual demand that materializes ends up being either lower or higher than what people were expecting. If the prices of goods and services would always adjust quickly to unexpected changes in demand, then the economy could always produce at its optimal capacity since prices would adjust to ensure that the quantity demanded of each good and service would always equal the quantity supplied.
If the prices are fully flexible, there will be no short-run fluctuation: output would remain constant and unemployment levels would not change because firms would always need the same number of workers to produce the same amount of output.
An inventory is a store of output that has been produced but not yet sold. If prices are inflexible, then an unexpected decline in demand that persists for any length of time will result in increasing inventories that will eventually force the firm's management to cut production. When this happens, output falls and unemployment rises.
Prices are inflexible in the short run for several reasons.
(1) firms often attempt to set and maintain stable prices because they make for easy planning.
(2) a firm with just a few competitors may be unwilling to cut its price due to the fear of starting a price war, a situation where its competitors retaliate by cutting their prices as well, thereby leaving the firm worse off.
An aggregate is a collection of specific economics units treated as if they were one unit. In macro, no or very little attention is given to specific units making up the various aggregates.
Macro primarily concerns two things: long run economic growth and short run fluctuations in output and employment that are often referred to as the business cycle.
Some important data in macro:
(1) GDP
real GDP (gross domestic product): a measurement of the value of final goods and services produced within the borders of a given country during a given period of time, typically a year.
nominal GDP: totals the dollar value of all goods and services produced within the borders of a given country using their current prices during the year that they were produced.
Real GDP corrects for price changes.
(2) Unemployment
a state a person is in if he cannot get a job despite being willing to work and actively seeking work.
(3) Inflation
an increase in the overall level of prices
In order to raise living standards over time, an economy must devote at least some fraction of its current output to increasing future output.
Financial investment: the purchase of assets like stocks, bonds, and real estate in the hope of reaping a financial gain.---This is merely the transfer of the ownership
Economic investment: it only includes money spent purchasing newly created capital goods such as machinery, tools, factories and warehouses.
Firms are often forced to cope with shocks--situations where they were expecting one thing to happen but then something else happened. Demand shocks are unexpected changes in the demand for goods and services. Supply shocks are unexpected changes in the supply of goods and services.But shocks don't necessarily mean good things or bad things happen.
Business cycle fluctuations typically arise because the actual demand that materializes ends up being either lower or higher than what people were expecting. If the prices of goods and services would always adjust quickly to unexpected changes in demand, then the economy could always produce at its optimal capacity since prices would adjust to ensure that the quantity demanded of each good and service would always equal the quantity supplied.
If the prices are fully flexible, there will be no short-run fluctuation: output would remain constant and unemployment levels would not change because firms would always need the same number of workers to produce the same amount of output.
An inventory is a store of output that has been produced but not yet sold. If prices are inflexible, then an unexpected decline in demand that persists for any length of time will result in increasing inventories that will eventually force the firm's management to cut production. When this happens, output falls and unemployment rises.
Prices are inflexible in the short run for several reasons.
(1) firms often attempt to set and maintain stable prices because they make for easy planning.
(2) a firm with just a few competitors may be unwilling to cut its price due to the fear of starting a price war, a situation where its competitors retaliate by cutting their prices as well, thereby leaving the firm worse off.
5/10/2012
The anti-capitalistic mentality
On the market of a capitalistic society the common man is the sovereign consumer whose buying or abstention from buying ultimately determines what should be produced and in what quantity and quality.
The profit system makes those men prosper who have succeeded in filling the wants of the people in the best possible and cheapest way.
The wealth of an aristocrat is not a market phenomenon. The feudal lord does not serve consumers and is immune to the displeasure of the populace. But the entrepreneurs and capitalists owe their wealth to the people who patronize their businesses.
The law of economic democracy: those who satisfy the wants of a smaller number of people only collect fewer votes--money--than those who satisfy the wants of more people.
The much talked-about sternness of capitalism consists in the fact that it handles everybody according to his contribution to the well-being of his fellowmen. What makes many feel unhappy under capitalism is the fact that capitalism grants to each the opportunity to attain the most desirable positions which, of course, can only be attained by a few. Everybody is aware of his own defeat and insufficiency. Some people's passionate dislike of capitalism is a mere blind for their hatred of some successful "colleagues".
The essence of the entertainment is variety.
The profit system makes those men prosper who have succeeded in filling the wants of the people in the best possible and cheapest way.
The wealth of an aristocrat is not a market phenomenon. The feudal lord does not serve consumers and is immune to the displeasure of the populace. But the entrepreneurs and capitalists owe their wealth to the people who patronize their businesses.
The law of economic democracy: those who satisfy the wants of a smaller number of people only collect fewer votes--money--than those who satisfy the wants of more people.
The much talked-about sternness of capitalism consists in the fact that it handles everybody according to his contribution to the well-being of his fellowmen. What makes many feel unhappy under capitalism is the fact that capitalism grants to each the opportunity to attain the most desirable positions which, of course, can only be attained by a few. Everybody is aware of his own defeat and insufficiency. Some people's passionate dislike of capitalism is a mere blind for their hatred of some successful "colleagues".
The essence of the entertainment is variety.
5/09/2012
5/06/2012
Failure of democracy
I believe that democracy can work even most of the citizens are stupid for the existence of law of great numbers. But as Byran Caplan argues, democracy will screw up when these is ubiquitous and systematical biases toward a thing or person. The most tragic example is people's hostility toward capitalism and hope for socialism. Now Sarkophobia once again shows the failure of democracy. I don't know whether this election would bring France to endless abyss, but I have to say democracy is not the will of majority.
http://online.wsj.com/article/SB10001424052702304743704577381673645798942.html?mod=WSJ_Opinion_LEFTTopBucket
http://online.wsj.com/article/SB10001424052702304743704577381673645798942.html?mod=WSJ_Opinion_LEFTTopBucket
5/04/2012
Democracy
The most fundamental concept of democracy is the idea that government exists to secure the rights of the people and must be based on the consent of the governed.
In practice, democracy is governed by its most popularly understood principle: majority rule. Namely, the side with the most votes wins, whether it is an election, a legislative bill, a contract proposal to a union, or a shareholder motion in a corporation. The majority (or in some cases plurality) vote decides. Thus, when it is said that "the people have spoken" or the "people's will should be respected," the people are generally expressed through its majority.
While it is clear that democracy must guarantee the expression of the popular will through majority rule, it is equally clear that it must guarantee that the majority will not abuse use its power to violate the basic and inalienable rights of the minority.
For the majority, ensuring the minority's rights becomes a matter of self-interest, since it must utilize the same rights when it is in minority to seek to become a majority again.
Indeed, as democracy is conceived today, the minority's rights must be protected no matter how singular or alienated that minority is from the majority society; otherwise, the majority's rights lose their meaning.
In practice, democracy is governed by its most popularly understood principle: majority rule. Namely, the side with the most votes wins, whether it is an election, a legislative bill, a contract proposal to a union, or a shareholder motion in a corporation. The majority (or in some cases plurality) vote decides. Thus, when it is said that "the people have spoken" or the "people's will should be respected," the people are generally expressed through its majority.
While it is clear that democracy must guarantee the expression of the popular will through majority rule, it is equally clear that it must guarantee that the majority will not abuse use its power to violate the basic and inalienable rights of the minority.
For the majority, ensuring the minority's rights becomes a matter of self-interest, since it must utilize the same rights when it is in minority to seek to become a majority again.
Indeed, as democracy is conceived today, the minority's rights must be protected no matter how singular or alienated that minority is from the majority society; otherwise, the majority's rights lose their meaning.
Subscribe to:
Posts (Atom)